ChrisCrocker

Mortgage Blog for Business

I just read a great post at the MortgageBlog.com.  This posting summarizes many of the benefits I have been experiencing with my blog.  The thing that first drew me to create a blog page was the convenience.  I immediately saw the opportunities of push-button publishing.  No longer do you have to hire a webmaster, spend thousands of dollars, and countless hours trying to create a static site that will accommodate all your clients and partners needs.  With the weblog, I can post and adapt with the experiences, demands, and interests of my readers.  The ability to easily adapt creates a valuable tool to attract, inform, and benefit my clients and partners.  For the most part, I try to use my page as a resource for my clients and partners.  But the great thing about this medium, is that it invites participation and fosters new ideas.

This is how it was described to me.  A blog is a discussion.  Its a forum that is dynamic and informal.  The days of having a website with flash media, some email accounts, and vague introductory text are over.  "Flash is Trash, Content is King", has become the new catch phrase.  Readers have become desensitized to graphics, bells, and whistles.  Blogs require participation from both sides of the discussion, and search engines thrive on recent and relevant content.

The post on Mortgageblog.com goes on to explain how the tool of a web log benefits the local, service driven broker.  Alas, another great tool to reinforce the expertise and consumer based mortgage adviser.

I welcome any of your successes or comments.

Seller Paid Closing Costs

Back in the day, you would have to hike up hill, both ways, in the snow, barefoot, to the bank carrying a 20% down-payment and a 12 year old Scotch (just to butter up the president of the bank).  Then we saw the introduction of ARM's, Interest Only and No Money Down Loans.  But soon, buyers realized that No Money Down did not equal No Closing Costs.  So, with increasing property values we see more and more buyers/sellers using "Seller Paid Closing Costs".  So lets take a little time to look at "Seller Paids"

Call 'em what you want:  Seller Paids, Seller Concessions, Seller Contribution, Allowances, etc.  Good or Bad, they have become another tool to get home buyers into houses with little or no money to contribute to the transaction.  By using Seller Paids in the purchase agreement, the seller is basically just allowing the borrower to roll closing expenses into the loan against the house.  It works like this, You're buying a home for $100,000.00 and the seller has agreed to allow for $2000.00 in concessions.  That allowance can, unless otherwise stipulated in the purchase agreement, be used toward any expense of the transaction.  In the event that the total costs don't use the whole $2000.00, it can be used to reimburse the buyer for any cost which were Paid Outside of Closing (POC), for example the appraisal or earnest money.  And vice versa, if the costs of the transaction exceeds the $2000.00, the buyer is then responsible for the difference.  Most lenders will cap these concessions at 4%-6% of the loan amount.

I USED TO get this question a lot, "Well, if the property appraises at $110,000.00, can I just get that $10,000.00 out to do improvements?"  The answer is always "nope".  The lender will only loan the lesser of the purchase price or the appraised value.  The reason I say USED TO, is because in the last few years, property values had been going up and up.  And buyers/sellers found creative ways to roll many expenses, including closing costs, into the loan amount against the home.  What we're experiencing now is a correction or slow down in the market.  Property values are not increasing as quickly as they have in the recent past.  So many of the people that rolled closing costs into their purchase, could potentially owe more on their home than the market will bare.  So instead of just "rolling it in", many buyers are finding out that "Seller Paid Closing Costs" aren't available because of equity issues.  In contrast, it is a buyers market, so many sellers are getting more creative and aggressive to sell their homes.  So, some sellers will take a 2 or 3 thousand dollar hit by including Seller Paid's, just to sell the property.

Are these closing costs really paid by the seller?  Technically yes, but theoretically no.  Yes, some costs may be listed under the sellers expenses on the settlement statement.  But no, because in the big picture, what is passed to the buyer as a concession, could have been used to negotiate a lower price.  As a buyer, your paying more for the home.

So, what are your goals as a buyer?  Does it make more sense for you to put those costs into the loan?  In the short term?  In the long term?  Or, does it make better financial sense to pay those up front and not finance those costs for 15 or 30 years?  Do you, as a buyer, have the ability to pay closing cost in cash?

Again we arrive at a reoccurring theme in these discussions.  A good mortgage professional will look at the goals of their client, the conditions of the market place, and the tools (loan products) they have in order to extend financing options.  I look forward to your questions or comments.

How Does A Mortgage Broker Get Paid? How Much?

I'm creating this post to see who wants to weigh in on a heated debate.  How is a Mortgage Broker paid?  Its a slippery slope that almost always goes from "How" to "How much".  So, to start things off, let's start with the nuts and bolts.  There are two things to remember.  Brokers can be paid by the Lender (the back), and brokers can be paid by the borrower (the front).  Sometimes brokers are paid by one or the other, sometimes by both.  But for the sake of this post, lets assume there are no Seller Paid Closing Costs (look for that post next week)

When Mortgage Brokers are paid by the lender (known as the "back end" of the transaction), it is in the form of Yield Spread Premium (YSP).  YSP is a commission that is paid to the broker by the lender for completing a mortgage loan with their company.  The amount of this commission is ultimately determined by the market.  Yes, there is an opportunity for "front end" closing costs to be paid in exchange for a higher rate, but this doesn't mean that those closing costs disappear.  It just means that the broker will pay those expenses out of their YSP in the form of a broker credit.

When a Mortgage Broker is paid by the borrower it is referred to as the "front end" of the transaction.  More times than not, a borrower would usually see a Loan Origination Fee and Processing Fee.  Depending on the type, documentation, and risk of the loan, a borrower may be charged additional fees.  These fees can be listed as Loan Origination, Processing, Credit Report, Broker Fee, Administration Fee, etc.

Now . . .How MUCH should a mortgage broker be paid?  This is where people usually start grandstanding.  Typically, closing costs can cost anywhere from 3% -6% of the loan amount.  Closing Costs are defined as a sum of ALL costs involved with the transaction.  To include:

• Lender Fees
• Broker Fees
• Appraisal Fees
• Title Fees
• State and Local Taxes
• Prepaid Items/Reserves
• Inspection Costs
• Homeowners Insurance
• Title Insurance
• And maybe more

The mortgage broker is just a piece of this amount.  My point is that there are several entities that are involved in the transaction.  All are hired to protect the interests of the borrower or the lender.  How much of that goes to the broker, depends on a variety of factors, many of which are beyond the control of the broker.  But mainly determined by the amount of work, time, and expertise that is necessary to complete the loan.  Just as an auto mechanic would charge for labor, or an attorney bills for hours.  A mortgage broker is entitled to charge whatever they feel their services are worth.  He/She may be priced too high or priced too low, just like any other services.

I hear this all the time, "a Loan is a loan, so why would a broker charge different borrowers a different amount?"  Well, to put it simply, no two loans are the same.  Some can be closed in a matter of hours with little or no documentation.  But, some can be closed over 45-60 days and require numerous forms and types of redundant documentation.  Or some don't close at all  (who should the broker bill in that event?)  So to say their all the same is a huge misconception.  The argument I always hear is "its just as easy to close a $50,000.00 loan as it is a $350,000.00."  That may be true through nothing but coincidence, certainly not a general rule.  The things that determine the difficulties and challenges of a loan seldom have anything to do with the loan amount.  It has everything to do with:

• The borrowers credit history
• Will the borrower be living in this home?
• Will there be a down payment?
• Is the borrower self employed?
• Is the property a single family residence?
• Are there repairs that need to be made?
• Is there anything unique about the property?
• And most definitely 100 other factors.

As with any profession, you get what you pay for.  Many brokers offer an array of services in order to build a lifelong lending relationships.  Others charge a minimum and extend no service other than shuffling paper work.  I don't speak for every broker, and certainly not the bad apples.  But there are a huge majority of mortgage brokers that pride themselves on their accomplishments and "can-do" attitudes.  A true mortgage professional sees the value in repeat business and a client for life.  A slow down or a flat market will weed the others out.

Always committed to making clients for life, your Missouri Mortgage Broker

Government Home Loans, FHA and VA

All mortgages fall under one of two classifications; Conventional or Government.  There are several distinctions within Conventional;  Conforming, Non-Conforming, Jumbo, Sub-Prime, etc.  But, with Government loans, there are only 2 distinctions FHA or VA.  Both FHA and VA are funded by private lenders, not the government.  But because some of the risk is shifted away from the lender because of government programs, they offer opportunities where conventional products might not

FHA is a loan that is insured by the Federal Housing Administration.  Meaning, that the borrower will have mortgage insurance, however it is usually a lower rate than that of conventional mortgage insurance.  Some features of an FHA loan would be:

• Low down payment requirements
• Lenient credit, debt, and income guidelines
• Down Payment and closing costs can be in the form of gift funds or can be rolled into the loan amount.
• Fixed and Adjustable rates are available

VA Loans offer many of the same benefits as FHA with a couple very significant differences.  The biggest is that the VA guarantees the loan.  This does not mean you are guaranteed a loan.  This means that, if you meet the eligibility and qualification guidelines, the VA will guarantee the lender against a certain portion of loss in the event of foreclosure, etc.  Why is that important?  Because of that guarantee, the lender feels all warm and fuzzy and will extend some features like:

• No down payment required
• VA loans are assumable loans
• No Mortgage Insurance
• Lenient credit, debt, and income guidelines
• Fixed and Adjustable rates are available

Government loans aren't the answer for everyone, but they do offer significant advantages for home buyers that meet certain criteria.  There are a lot of misconceptions from realtors and banks about the processing and underwriting for these loans, but any reputable mortgage broker can easily guide your loan through so you can maximize the benefits available to you.

Private Mortgage Insurance is Tax Deductible in 2007

I've been watching the information regarding Private Mortgage Insurance (PMI) and the new bill passed to allow for PMI to be tax deductible.  And I have found some interesting limitations to the program.  In the past, the way around PMI was through PiggyBack or Combo Loans.  Breaking the total loan amount into to portions of 80% and 20%, in affect the lender would be loaning you the down payment.  There were also lenders that used what is called "lender paid PMI", where the lender would pay the insurance for you, and then recoup that expense in the form of a higher interest rate.  And the benefit to these programs was that all of the interest associated with these programs could be used as a tax deduction.

Well now, the government is saying that since PMI behaves in a similar manner as interest rates, why not let the borrowers receive the same tax benefits.  BUT, there are significant limits on who and how a homeowner can use this deduction.

• First, you can only use the deduction for mortgages closed in 2007. If you began a mortgage in 2006, you won't be able to take the deduction in the 2007 tax year unless you refinance.
• Two, you only get the full deduction if your adjusted gross income (AGI) is less than $100,000. The amount you can deduct decreases by 10% for every $1,000.00 over %100,000.00 per year.  Meaning, if you make $110,000.00 per year, you cannot receive any deduction.
• Third,  this is only good for 2007.  In order to use this deduction in the future, Congress will have to vote to renew for upcoming years.
• Lastly, in order to receive this deduction, you have to itemize your schedule of deductions on your taxes.  If you take the standard deduction, this has no benefit for you.  And in all practicality, you need to owe $130,000.00 or more for it to be worth your while.

So, you can see that it is a very slim window of home buyers that can benefit from this bill.  This was the intent of its creators.  They were trying to show the most benefit to those who need it most, lower income borrowers with mortgages under $100,000.00

Real Estate Partners Through Blogging

In any sales-based industry, we continue to see more and more embracing the technology of the weblogs to expand their business and educate their clients.  The real estate and mortgage lending industries are no exception.  I've read trade magazines like Mortgage Originator that have showcased how this tool can build partnerships and networking communities.  I've also seen professional coaches such as Bliss Sawyer, not only practice her own suggestions, but demonstrate the features and benefits of the weblog tool.  From a customer's perspective, its a great way to get information from all different directions.  No longer are readers forced to process content from a news source, information is coming straight from the tap.  Think of blogs as an informal discussion.  What do you want to talk about?

Always looking forward to your comments

Your Columbia, MO Mortgage Broker

Mortgage Trends and Predictions. Will Phil See His Shadow?

Will Phil see his shadow? Will there be 6 more weeks of Winter for the real estate market?  As we look ahead to another year in the real estate industry, I thought it would be a good time to list some of the trends that make this industry so exciting but volatile.  These thoughts come as a result of an article by Mortgage News Daily.

1)  The first trend is the increase in refinance activity.  With the decrease in interest rates a few years ago and the fact that they have remained low for the past couple of years, it has made mortgage pros out of many.  More and more homeowners are educating themselves about features and benefits of refinancing options.  Resulting in more and more refinances.  So much so that refinances continue to account for more and more of financing activity.  Even with the dramatic highs and lows, refinance activity continues to increase year after year.

2)  Another trend. . . financing options.  Naturally as activity, or demand for financing, increases, the market answers with a large variety of options to reach all homeowners.  The days of having 20% down or maintaining 20% equity in your home are nearly over.  Even people with challenged credit and bankruptcies can gain approval for a mortgage.  More financing options have made it possible for people to afford more expensive homes, or second homes.  There are literally thousands of loan scenarios and a loan program to fit most of those needs.

3) And lastly, affordability of homes is very low.  The increase in home values has priced many buyers out of homeownership.  In the 80's it was the interest rates that kept people saving.  Now its the value of the home.  Builders keep building, but experts say it is very unlikely that flooding the market with new homes will deflate the housing bubble.

Here are some predictions from Punxsutawny Phil:

• Inflation will remain low and so will rates.  You can reasonably expect to see rates well below 7.0% for a while.
• ARM's (Adjustable Rate Mortgages) are going to be a big player in 2007.  Many of the homeowners that bought or refinanced in the refi-boom will see their ARM begin to adjust.  So, to combat that, these homeowners will refinance, but a majority will switch to fixed rate mortgages.  We'll see a considerable drop in ARM's
• New construction will hit bottom in the first half of 2007 and begin to increase again as we approach fall.  With interest rates remaining low, buyers will begin to stimulate the market in the second half.
• Don't expect prices of homes to fall through the floor.  Instead, look for creative incentives from sellers.  Seller Paid Closing Costs, Appliance upgrades, warranties, etc.
• Mortgage activity will decrease from 2006 numbers, but total mortgage debt will increase do to refinances of ARM's

As always, your predictions and comments are welcomed.

-Your Mortgage Broker in Columbia and all of Missouri

Mortgage Myths and Misconceptions

Mortgage products are always evolving, and lenders are constantly trying to build a comprehensive portfolio of products to capture as much of the market as possible. Distinguishing between fact and fiction can reveal many loan tools that can ultimately save you time and money. Whether you're purchasing or refinancing, you may be misinformed due to some common mortgage misconceptions. As with any big purchase, be sure to weigh all options to decide which is best for you.

Myth #1 - A 30-year fixed mortgage is the best mortgage option out there.
If you are in your final home or plan to live in your home for a very long time, a 30 year fixed mortgage is the way to go if you can find a low interest rate. Today, the average homeowner will stay in a house for nine years. If you're a first time home buyer, that average goes down to just a few years. If you fall under this category, an adjustable-rate mortgage (ARM) might be better for you. While interest rates on fixed mortgages are fairly low right now, ARM rates may be lower (but not always). There are even interest only options that can give you the lowest possible payment. These introductory rates could last up to 10 years before it is time for them to adjust. It all comes down to your own personal situation and goals. Do the math and analyze each option and decide what fits best for you. None of these are bad options. They just have advantages for different situation. Remember, these products were developed for a reason .Learn more about your loan options.

Myth #2 - You have to save up for a huge down payment before buying a home.
Some people feel that a minimum 10 percent of the purchase price is required for a down payment on a home. Some even go as high as 20 percent. However, there are many lenders out there with loan programs for home buyers that can only afford five percent or less on a down payment. Some lenders will even accept zero down. So, if you're living paycheck to paycheck right now and feel like you're stuck in a vicious bill cycle without an opportunity to save, don't panic. There may be a loan option out there for you.

Myth #3 - If you don't pay 20 percent down, you have to buy mortgage insurance.
This is not necessarily true. Now there's an option out there called piggyback financing or a combo loan that can help you avoid purchasing mortgage insurance. A piggyback loan is a second loan designed to minimize your down payment. Your first mortgage loan covers 80 percent of the purchase price, and, depending on how much you can afford, the second loan can cover up to 20 percent of the remaining costs. There are a couple advantages to taking this route. First of all, it maximizes the amount of house you can afford by decreasing your down payment. Second, it allows you to use the entire tax benefit of your mortgage. The interest on a piggyback loan is tax deductible, while the premiums for mortgage insurance are not.

(NOTE: The new tax bill is working to make mortgage insurance tax-deductible! Check back for more news and updates on this!) There are also lenders that have more affordable mortgage insurance than others. Your situation may call for a much cheaper mortgage insurance premium than your buddies. As always, just look at your options and ask your mortgage advisor for their advice.

Myth #4 - Refinancing your mortgage extends your loan term by another 30 years. Many homeowners are reluctant to refinance for fear of starting over on their payment plan. However, there are ways to get a lower monthly payment and still stay on track to finish at the same time. All you need to do is ask your lender to amortize your payments to a shorter payment schedule. There are also ways to accelerate your amortization if you are unable to lower your term when you refinance for that lower rate or cash out. Learn more about refinancing.

Myth #5 - Bad credit takes away your chances to qualify for a loan.
If you have a damaged credit history, you could still be qualified for a home loan. Things like bankruptcy, repossession or paying bills late can make you a very high-risk loan candidate. The truth is, there are a lot of lenders out there that make it their business to help home buyers with less than perfect credit. Learn more about your credit score at http://www.myfico.com/. If you have damaged credit and want to see what you qualify for, click here!

Myth #6 - You need to pay off your mortgage as quickly as you can.
Usually, homeowners feel like they need to get rid of their monthly mortgage payments as soon as possible. However, the interest rate on your mortgage can be deducted from your federal taxes. This is where the term effective interest rate derives. Your effective rate considers your tax savings. Therefore, it may make more sense to pay off other forms of debt first, such as high-interest credit cards or car loans. It can be a good idea to pay off a mortgage early, if doing so helps you achieve your long-term financial goals and if you have no other debt.

Myth #7 - It doesn't matter where you get your loan, all lenders offer the same products.
This couldn't be further from the truth. Different lenders have different incentives and they might not have your best interests in mind. Most banks and credit unions usually don't have the variety of loan options that a mortgage broker will. Because mortgage brokers carry a wider variety of loan products, you can find a mortgage that best fits your specific financial situation. Remember a mortgage broker works for you, and they don't get paid until your loan closes. So, like you, they have a vested interest in seeing your loan through in the most efficient manner possible. The bottom line? If you have a unique situation or specific goals, seek the advice and services of an experienced mortgage broker. More times than not, they'll have a number of products to help reach homeownership.

Your comments are welcomed!

Is The Cash Out Refinance Dead?

OK, so we've had a period of increasing real estate values and rates have remained low to allow for a refinance boom.  During this boom, there was a large trend of people taking cash out against the equity in their homes, and fortunately the property values were increasing so there was plenty of room to take that cash out.  Well, things are beginning to shift.  Many real estate markets are beginning to correct.  Meaning that the values are beginning to fall due to a surplus of properties.  We are seeing some (not a huge amount, but some)of that here in Columbia, MO.  So what does that mean for refinanciers?  It means there isn't enough value in a lot of properties (relative to the amount owed) to pull any cash out.  In some cases, people who did a cash out in the recent past will find themselves owing more on their house than the market will bare.  This is called "upside down" in your home.  There are still some good opportunities and justifications for refinance, but as property values trickle down, the opportunity to take any equity in your home in the form of cash is dwindling.

Real Estate Speculation, House Flipping

All laughing aside, real estate speculation can be lucrative and it can be very risky.  The combination of increasing property values and low interest rates have brought "house flippers" out of the woodwork.  Suddenly everybody is a pro at new paint, carpet, and landscaping.  I watch television shows all the time that glamorize "flipping" by showing six figure profits in 4 weeks time.  Not that it can't be done, but not every house that is flipped will be a homerun.  There are thousands of considerations that can cost you thousands of dollars if neglected or poorly executed.

So, enjoy the video.  It made me laugh, but it also gives you an idea of how many people have their fingers in the pie.